An employee counts money at a bank in Cairo September 4, 2014 (Reuters)
The value-added tax (VAT) system could boost tax revenue by an additional LE30 billion if implemented instead of the current sales tax system, according to a new study by the Egyptian Centre for Economic Studies (ECES).
The study profers that the introduction of VAT would lead to a one time price hike of non-essential commodities and that inflation rates could initially increase by 2.6 percent.
Egypt's vast informal sector, that makes up almost 30 percent of the Egyptian economy, could shrink as a result of the introduction of VAT, as the tam could encourage informal business owners to legalise their businesses to benefit from potential tax refunds, the study suggests.
The ECES says that implementation of VAT would decrease double taxation and eventually promote a culture of tax compliance.
The long-delayed VAT law is part of the government's fiscal reform programme through which energy subsidies are cut and new taxes are introduced, to reduce the country's ballooning budget deficit.